GLOBALISATION AND SOCIETY

SAI KISHORE

QUOTES
For the first time in human history, the world is close to creating a single, unified global system UN, Human Development Report 1992 While promoters of globalization proclaim that this model is the rising tide that will lift all boats, citizen movements find that it is instead lifting only yachts. International Forum on
Globalization

Multinational Enterprises
Definition of MNE: a company with a worldwide approach to markets and production or one with operations in more than one country. Like animals in the zoo, multinationals come in various shapes and sizes, perform distinctive functions, behave differently, and make their individual impacts on environment. What MNEs Offer Why FDI? Rationale, economic and non-economic The GOOD and the BAD of the MNEs

What MNEs Offer

Economic Impact of MNE: Home Country Gains and Losses

Home Country Gains: Home country gains in jobs, profit repatriation, expansion of business. Home Country Losses: FDI outflows may create jobs abroad at the expense of jobs in the home country.

Economic Impact of MNE: Host Country Gains and Losses

Host Country GainsFDI inflows may result in the transfer of capital, technology, and/or managerial expertise, and well as the creation of new jobs. Host Country LossesFDI inflows may: cream off premium resources drive up local labor costs displace domestic investment disadvantage local competitors destroy local entrepreneurship

Evaluating the Impact of FDI

FDI is Foreign Direct Investment The large size of some MNEs causes concern for some countries MNEs and countries need to understand the impact of FDI in home and host countries

Balance of Payment Effects

Scenario I: Depositing funds in an Indian bank, a UK MNE makes an FDI when purchasing an Indian owned company. Because the MNE makes no changes in management, capitalisation, or operations, profitability remains the same. Dividends however, now go to the foreign owners rather than remaining in India. There is thus a drain on Indias foreign exchange and a corresponding inflow to UK. Scenario II: A UK MNE purchases idle resources (land, labour, materials, equipment) in India and converts them to the production of formerly imported goods. Rising consumer demand leads the MNE to reinvest its profits in India, where the import substitution increases the host countrys foreign-exchange reserves. Most FDI falls somewhere between these two extreme examples.

Considering the Logic of FDI

Need to consider relationship between those who make foreign investments (MNEs) and possible effects on receiving countries Areas to consider:
Stakeholder trade-offs Cause-and-effect relationships Individual and aggregate effects

The Economic Impact of the MNE

Balance-of-Payments effects:
Net import effect Net capital flow

Growth and Employment effects:

Home-country losses Host-country gains Host-country losses

BOP Effects of MNEs

One countrys surplus is another countrys deficit BOP effects on Current account (especially trade) Capital account International reserve Measuring Net Effect Consider both inflow and outflow

11

Foundations of Ethical Behavior

Cultural Foundations Cultural relativism holds that ethical truths depend upon the groups subscribing to them; thus, intervention by outsiders is unethical. Cultural normativism holds that there are universal standards of behavior; thus, global standards should be considered ethical. Legal Foundations Law is a good basis for ethical behavior as it embodies local cultural values.

Legal and Ethical Issues

Legal vs. Ethical Issues: Everything that is legal is not necessarily ethical. Extraterritoriality: the extension by a government of the application of its laws to the foreign operations of its domestic firms Corruption issues: How to prevent it? Or, work with it? Transparency International-their role and activities Environment and Global Warming

Confronting bribery, globally

Bribery consists of payments, or promises to pay cash or something else of value, to public officials and/or other people of influence. The U.S. Foreign Corrupt Practices Act of 1977 Transparency Internationals Business Principles for Confronting Bribery (2003) The OECDs Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997) The revised OECD Guidelines for Multinationals The International Chamber of Commerce Rules of Combat to Combat Extortion and Bribery (1999) The UN Convention Against Corruption (2003)

Likelihood of Paying Bribes Abroad by Nationality of Companies

THANK YOU